Update COVID-19 in Indonesia: 1,769,940 confirmed infections, 49,205 deaths (22 May 2021)
7 June 2021 (closed)
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Foreign exchange earnings are important assets for a national economy. Therefore, many nations have recently been taking a much more protectionist approach vis-à-vis trade in an effort to strengthen their trade positions, generate trade surpluses, hence see the inflow of more foreign exchange earnings. Foreign exchange assets support a stable local currency as well as economy.
It is interesting to take a look at which products or services (exported from Indonesia) function as key foreign exchange earners for Indonesia. Exports of these items also helped to boost Indonesia's trade surplus as well as pushing the nation's foreign exchange reserves to an all-time record high of USD $129.4 billion at the end of September 2017.
1. Palm Oil (approx. USD $17.7 billion)
Indonesia is the world's largest producer and exporter of crude palm oil (CPO). Palm oil is one of the most important materials, used across the globe in a wide variety of products, ranging from food products to biodiesel or personal care products such as shampoo and cosmetics.
Although the Indonesian government has been eager to limit expansion of oil palm plantations (in an effort to safeguard the environment and reduce opportunities for man-made forest fires), there is still plenty of room for palm oil production growth in Indonesia as productivity per hectare is generally very low.
2. Foreign Tourist Arrivals (approx. USD $14.0 billion)
Indonesia has a lot to offer to foreign (and domestic) tourists, such as beautiful countryside, historic remnants, lively cities, and much more. However, it lags far behind Singapore, Malaysia and Thailand in terms of foreign tourist arrivals. This is primarily due to weak connectivity within Indonesia (due to the lack of infrastructure development), the low quality of local human resources (for example, relatively few Indonesians speak English), and the relatively weak branding of Indonesia as a top tourist destination.
Still, the number of tourist arrivals into Indonesia is growing from year to year (also thanks to a decrease in big terror attacks since the late-2000s). In the January-September 2017 period, tourist arrivals in Indonesia grew by 17.48 percent year-on-year (y/y) to 8.82 million tourists. The government has the (possibly too) ambitious target of welcoming 20 million visitors a year by 2019. In 2016, Indonesia attracted 11.52 million foreign visitor arrivals. On average, each foreign tourist spends between USD $1,100 and USD $1,200 per visit (hotel/lodging, transportation, souvenirs, tourist attractions, etc.).
The Indonesian government is eager to attract private investment in the tourism industry in order to push tourists figures higher.
3. Oil & Gas (approx. USD $12.6 billion)
Although the performance of Indonesia's crude oil industry has been sliding rapidly since the mid-1990s (domestic oil production having tumbled due to weak investment in exploration, while existing oil fields are maturing), foreign exchange earnings from the oil and gas industry remain important assets for the country. However, low crude oil prices, bleak legal certainty, and the need for much more capital-intensive exploration in deep water are matters that limit investment in this industry. In recent years, several big global players in fact left Indonesia's oil industry. Therefore, for the moment, we remain somewhat pessimistic about this sector although new output originating from the Banyu Urip oil field is encouraging.
4. Textiles (approx. USD $11.8 billion)
Indonesia is ranked among the world's top ten largest textile producing countries. This industry (textile and garment industry) is also one of Indonesia's oldest industries and - being labor intensive - a large source of employment opportunities. However, similar to most other industries, Indonesia lags far behind its regional competitors. China controls about 35 percent of global textile markets, while Indonesia merely controls 2 percent. One key problem (that causes uncompetitive textile products for Indonesia) is its reliance on imports of raw materials.
5. Coal (approx. USD $11.1 billion)
Indonesia is one of the world's leading coal producers and exporters (especially in terms of medium-quality and low-quality thermal coal). Although there is a push for renewable energy sources, coal will remain an important global energy source in the decades ahead (reflected by the establishment of many new coal-fired power plants in Indonesia and in other parts of Asia). Another positive matter is that the coal price has been surging in 2017 and therefore Indonesian coal mining companies have seen their earnings improve after experiencing several hard years (2012-2016). However, the coal price movement remains highly dependent on Chinese mining policies.
6. Overseas Labor of Indonesian Workers (approx. USD $10.4 billion)
Indonesians that go work abroad (in Indonesian: tenaga kerja Indonesia) are also an important source of foreign exchange earnings. Most of these workers are low educated Indonesian women who go to work as cleaning ladies or babysitters in households in Malaysia, Singapore, Hong Kong and the Middle East. Part of their salaries is sent to their bank accounts in Indonesia, hence enter the Indonesian economy.
To complete the top ten: (7) electronics, (8) wood & forest products, (9) rubber and (10) shoes & footwear products